Investors interested in stocks from the Retail - Restaurants sector have probably already heard of Yum China Holdings (YUMC) and Shake Shack (SHAK). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Yum China Holdings and Shake Shack are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. Investors should feel comfortable knowing that YUMC likely has seen a stronger improvement to its earnings outlook than SHAK has recently. But this is just one piece of the puzzle for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
YUMC currently has a forward P/E ratio of 24.69, while SHAK has a forward P/E of 103.27. We also note that YUMC has a PEG ratio of 2.53. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. SHAK currently has a PEG ratio of 4.59.
Another notable valuation metric for YUMC is its P/B ratio of 5.12. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, SHAK has a P/B of 7.77.
These are just a few of the metrics contributing to YUMC's Value grade of B and SHAK's Value grade of F.
YUMC is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that YUMC is likely the superior value option right now.
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Yum China Holdings Inc. (YUMC) : Free Stock Analysis Report
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